Funding for Outcomes (FfO) is a new approach to contracting that
enables holistic services funded by several government agencies to be
specified in one contract. Whereas traditional contracts reward
providers' effort, integrated contracts focus on achievement--the
impact of service delivery and how services contribute to improving
outcomes for clients. The project has, in the words of providers
interviewed for the FfO project evaluation, "changed the culture of
contracting" in New Zealand. The evaluation showed a general belief
amongst participants that integrated contracts have introduced a range
of improvements, including providers spending more time on service
development and having an improved capacity to provide high-quality
holistic services, meet client needs and operate more effectively.
Reports are more relevant and can be used to examine the effectiveness
of policy underlying government investment in services. The new approach
is involving funders and providers, often for the first time, in
collective contract negotiation and requires the building of strong
relationships with all the parties. This gives providers a better
understanding of funders' requirements and funders a better
understanding of the complete service being undertaken by the provider.

INTRODUCTION

The Funding for Outcomes (FfO) project arose as one response to the
findings of the Community and Voluntary Sector Working Party in 2001.
The Working Party identified major issues that needed to be addressed to
improve the way that the government funds and enters into contracts with
community, iwi and Maori organisations. These issues included the
complex reporting requirements set by government agencies, the
"siloed" approach to contracting taken by these agencies, and
the inability of providers to influence contract terms.

FfO was established in 2003 as a mechanism for government agencies
to collaborate in contracting with community organisations and, as a
consequence, to reduce contract compliance costs for providers. It is
changing the culture of government contracting with not-for-profit social service providers in New Zealand.

BACKGROUND

Interdepartmental work on contracting with non-government
organisations (NGOs) that began in 1997 had noted that government's
segregated approach to contracting was counterproductive in delivering
services to clients with complex and multiple needs. An
interdepartmental committee tackling this problem in 1999 developed a
programme Best Practices in Funding. This aimed to improve
interdepartmental collaboration and reduce compliance costs for
providers by:

Grant application forms were standardised and made available via
the internet.

A first attempt was made at developing an integrated contract in
1999 with a provider delivering a wraparound (holistic) service (2) to
clients with complex and multiple needs. Unfortunately, as the
evaluation (Ministry of Social Policy 2001) of this pioneering attempt
reveals, the contract that emerged was a compendium of the existing
siloed contracts, was not simplified, and did not reflect the integrated
service being delivered by the provider.

The "lead funder" approach (where one funder managed the
contract on behalf of all other funders) was trialled in 1999-2001 and
proved unworkable as no one government agency had the technical
expertise and knowledge to advise the provider on all aspects of another
government agency's business, and accountability needed to stay
with the funding source.

Intermittent attempts were made to share capability assessments and
information between funders during the same period, but there was no
structure in place to normalise and embed this approach and so enable
the available funding to be used as effectively and efficiently as
possible.

In April 2003 the State Services Commission and Ministry of Social
Development (MSD) jointly released a report on their integrated service
delivery programme called Progress Report on Integrated Service Delivery
Programme (Mosaics). The programme was part of a set of initiatives
under the Review of the Centre that began in 2000 as a comprehensive
analysis of the strengths and weaknesses of the public sector and
included ongoing work to lift the performance of the public service. The
Review of the Centre focused on "circuit breaker"
problems--finding new ways of working to resolve specific problems in
service delivery, regional coordination including removing barriers to
collaboration, and enhancing evaluation of public service performance to
assist in achieving desired results.

Also in 2003, Treasury released its Guidelines for Contracting with
Non-Government Organisations for Services Sought by the Crown. This
document brought more uniformity to contracting practices and dispelled
common myths about what was allowable in social service contracts
between government and service providers (for example, contracts could
be made for three or more years not just one year as many government
officials then thought).

Against this background, MSD was asked to lead a "whole of
government" approach to address the Government's concerns
about the way government departments and agencies were contracting with
non-government organisations for services sought by the Crown.

THE FUNDING FOR OUTCOMES PROJECT

In late 2003, the FfO project was established to:

* speed up progress in developing and implementing a more
integrated approach to government contracting with NGOs

* reduce compliance costs for service providers

* identify success factors in achieving improved funding practices
between multiple government funders and providers beyond the life of the
project.

In brief, the FfO project responded to the Ministers'
directive by, first, formalising a collaborative approach through the
legally mandated platform of an integrated contract. Second, the project
shifted the focus of these contracts from outputs to outcomes. Because
all government agencies seek the same high-level, long-term outcome for
clients, multiple government agencies can use the mechanism of a single
integrated contract to collectively fund each provider. Likewise, each
provider can use the integrated contract to describe, deliver and report
on either a holistic wraparound service for individual clients or the
various different services they are funded to deliver for the same
client group.

Contract advisors were initially seconded from across government to
form the first FfO team. (3) In April 2004 they began work with their
government colleagues on reducing barriers to developing integrating
contracts by:

* identifying and understanding the barriers to an integrated
approach to contracting

* developing and refining the tools and frameworks needed to manage
the contracting process

* developing an increased facilitation and brokering presence in
the regions to facilitate the design and management of integrated
contracts

* documenting and evaluating the process of integrated contract
development and management to inform best practice

* sharing best practice experience across government and NGOs on
developing common outcomes and monitoring the results of service
delivery

* integrating quality assurance, audit and reporting processes

* instituting a senior officials group representative of government
departments ("Steering Group") that would provide high-level
advice on the project, and confirm the decision-making process about who
would be involved in the project

* using a transparent escalation process through the project
steering group when cross-government barriers arose.

In the pilot stage of the project the FfO team was tasked to work
with up to 20 significant service providers (at least eight of which
were Maori or iwi providers) and with smaller organisations requiring
capacity building and support. The team was also asked to work with at
least two providers of disability services, and later with providers
delivering family violence prevention services.

BARRIERS TO INTEGRATED SERVICE DELIVERY

Each government funder has responsibility and accountability for
services and activities in its own sphere of influence or portfolio.
Each government agency contracts with the community, iwi or Maori
organisations that will best deliver its programmes.

The community, iwi and Maori organisations delivering these
services tend to specialise in delivering particular kinds of services
(such as service to prevent family violence, or to improve parenting
skills) or deliver services to meet the needs of particular clients
(such as teenagers who have dropped out of school or are likely to do
so).

To finance this work, and pay the salaries of the professional
people who deliver these services, providers seek funding from numerous
sources, including various government agencies. This funding is secured
through bilateral contracts for each programme or activity that the
provider agrees to carry out on behalf of the funder. The programmes the
provider contracts to deliver will not necessarily perfectly match the
needs of all the clients with whom the provider is working. Providers
may also take on contracts for work that is not their main focus so that
they can use some of the funding for interventions their clients need.

Providers, therefore, often have several contracts with multiple
government funders and this creates fragmented service funding. These
multiple contracts mean providers work with multiple and diverse IT
systems, legal requirements, payment systems and administrative
processes.

Providers have major problems reporting to government on their use
of the money for service delivery, as their work often does not fit into
the reporting template, particularly if a contract is highly specific in
telling a provider what to do. They can be at risk of being censored for
not doing what their contract specifies, even if their contract does not
address their particular client groups' specific needs (but what
they are doing does).

Providers often do not get credit or funding for the work they
undertake "outside" of their contract. Providers spend
considerable time breaking down their work to fit multiple report
templates that do not match what they do. For some providers this task
is so complex they hire a person just to write service reports.

Providers also spend time providing the same information for
reports and for audit purposes, but in a different format to different
government agencies.

While this is frustrating and costly for providers, it is also
problematic for funders.

Under bilateral contract arrangements each government agency
focuses on its own contract and the delivery of its own particular
programme or service. The government agency may be unaware of the other
services that the provider is delivering, and may not appreciate that
the provider is delivering a holistic service, or that the various
services delivered by the provider to the same clients could be more
efficiently managed if merged into one integrated service.

Funders do not have a basis for understanding the effort needed to
work with clients when they only see part of the service that is being
delivered. There is much scope for misunderstanding about the
effectiveness of service delivery and value for money, and the
government agency does not receive a clear picture of which
interventions are working for the client and which are not.

ENABLING INTEGRATED SERVICE DELIVERY THROUGH INTEGRATED CONTRACTING

Integrated contracting encourages all the parties involved to think
differently about how they contract with social service providers. In
particular, the integrated approach has introduced two major new
features to contracting:

* a collaborative approach on the part of government agencies

* an outcomes or results-based focus.

Collaboration

All the agencies with an interest (4) in the service being
delivered, including local authorities, district health boards and
philanthropic groups, are party to the integrated contract. Agencies
work collectively to ensure the programmes they are funding meet client
needs. By doing this, service gaps (and the agencies that should be
funding work to fill these gaps) are more obvious (so those funders can
also be invited to become a party to the contract). Where possible,
funders will work with each other to merge their service requirements
into an integrated service. (5) This is one of the key benefits of the
integrated contract. Multiple individual contracts for specific services
cannot reflect an integrated service, whereas the single integrated
contract is able to document the complexity of interventions required
for wraparound or holistic service delivery. Sometimes government
agencies that do not fund the service will, nevertheless, become a party
to the contract by providing non-financial resources (such as data, or
personnel who work alongside the provider).

As a party to the integrated contract, providers are also involved
in developing the contract. This improves parity for the provider with
funders. It is also giving effect to the promise made in the Statement
of Government Intentions for an Improved Community-Government
Relationship that community organisations participate in decision-making
on the delivery of services.

Collaboration through FfO integrated contracting is proving to have
many advantages for all participants:

* Funders meet each other--often for the first time--and improve
their knowledge of the range of work performed by providers to meet the
multiple needs of clients.

* Funders also share information about their own areas of work and
expertise so get a better understanding of their co-funders' core
work.

* The collaborative effort means improved relationships between
funders and providers, and the development of greater trust so that
there can be more creativity in finding effective interventions to get
the right results for clients.

* By involving the provider in the contract discussions, everyone
gets a better, more well-rounded picture of the work.

* Providers are, for the first time, feeling involved in the
process of contract development, as opposed to being given a contract to
undertake.

* Service delivery can be made more cost effective when funding is
transparent and the funding that is available can be used more
efficiently.

* Providers' compliance costs are falling when they are
required to write fewer reports, and when reports more closely match the
service being delivered.

* The increased upfront effort in drafting the results-based
contract is mitigated by the certainty provided by the longer term of
the contract (three years), and the greater robustness of the process.

* The capability of new contract managers is raised by the
knowledge they gain from participating in integrated contract
development and joint review meetings.

* All funders learn from the dialogue with providers--and this is
especially apparent at review meetings.

Focus on Outcomes (Results)

By taking an outcomes focus, the contracts articulate the results
that the provider is seeking for clients by delivering the service, and
that government is seeking for clients in funding the service. The
implications are far-reaching.

* There is a better match between what providers do and what their
contract says it wants to achieve.

* Funders and providers have a clearer understanding of the results
sought from the services and of the clients for whom the services are
designed and delivered.

* Clients have a better chance of getting the services they need.

* Reports go beyond counting the number of interventions.

* The contract articulates the changes that the clients are
expected to experience and reports document these results, so are more
meaningful, and also reflect the progress made in achieving the results.

* The outcomes focus builds opportunities to review trends and see
whether the outcomes we are looking for, for clients, are being
achieved.

* By monitoring results, providers' efforts are acknowledged
and the effectiveness of policies and programmes is made transparent
(whereas in the past providers may have been seen as non-performers if
clients did not respond as expected).

* The results-based reports provide opportunities for performance
measurement--that is reports can record how well and how quickly a
service is reaching the client group, and the extent to which clients
participate in the programme or service activities.

* In a collaborative situation where all the funders and the
providers are collectively reviewing the reports and viewing trends,
there is a richness of information-sharing and opportunities to build
knowledge about what is happening for particular groups of clients.

ASPECTS OF THE INTEGRATED CONTRACT

Pre-Approved Standard Terms and Conditions

The contract instruments have been agreed for use by all the
government agencies involved in the process, and their legal teams.
Several government agencies (MSD, Department of Labour and district
health boards among others) are now starting to use the integrated
contract standard terms and conditions in their own contracts with
social service providers. This practice is paving the way for a single
generic set of terms and conditions to be utilised with third-party
social service delivery across New Zealand--whether the long version for
use with larger contracts over $200,000, or the pared-down short version
for smaller contracts.

Using a pre-agreed standard set of terms and conditions provides
the opportunity to speed up contract negotiation and sign-off processes,
thereby reducing transaction costs for all parties.

Each Funder's Accountability and Relationship with the
Provider is Maintained

The funding from each government agency is kept separate (i.e. is
separately invoiced) to give transparency to the money flow. In other
words, the integrated contract enables each government agency to retain
its autonomy and accountability for its own portfolio responsibilities,
funding, and relationship manager while joining in funding collaborative
action to address clients needs in quite complex ways.

Contract service descriptions identify which funder is paying for
each activity and even when activities are jointly funded it is still
clear which funder has responsibility for funding which intervention or
part of it.

Clarity of Structure and Processes

Integrated contracting has a clear structure and processes so that
everyone involved knows their role and what is expected of them. The
process is facilitated by a Funding for Outcomes Contract Advisor whose
role is unbiased and non-representative of any one funding agency.

Legal Status

The integrated contract is a legal document. This means that all
parties must engage in the process and cannot make unilateral decisions
or withdraw unlawfully.

The process and the product are mandated (by Cabinet and by senior
management across government, including the Centre Agencies (6)), are
supported by providers, and meet government quality assurance
requirements.

Flexibility

Integrated contracts are flexible so that government systems can be
accommodated when it would take too long to change them (e.g. payment
systems that have been decreed through regulatory or legislative
processes). The system can cope with fee-for-service funding as well as
payments in advance or in arrears. This is particularly important
because integrated contracts can accommodate the full range of Crown
entities as well as non-government funders such as funders from the
philanthropic sector, and non-monetary resources (like data sets,
equipment, accommodation or personnel).

ACHIEVEMENTS OF THE FfO TEAM TO DATE

In developing integrated contracts the FfO team has achieved some
significant milestones. It has developed new contract instruments and
new processes which did not previously exist. These include:

* provider risk assessments that were developed with the support of
the Office of the Auditor-General to protect both the provider and
funders (and which form the basis of the shared monitoring framework)

* a working together charter documenting expectations, roles and
responsibilities of government officials participating in an integrated
contract

* standard terms and conditions drafted with input from government
legal teams, some providers, and academics from the community and
voluntary sector (now being used by several government agencies as their
standard)

* a template for drafting the "special" terms and
conditions--that is, a single document in which is recorded the results
expected from the services delivered by the provider; the activities
that the provider will carry out in order that the expected results will
be achieved; the target group, volumes; funding amounts and payment
dates for each funder

* a framework for shared monitoring

* an integrated report template (that matches the expected results)
and reporting schedule (including dates of synchronised or integrated
audits) which forms the basis of the collaborative review process

* an integrated contract variation template

* collaborative integrated contract review meetings.

In implementing the integrated contract process the FfO team has
worked with over 45 government agencies (including district health
boards, local government and Crown entities) in main centres and several
small towns across New Zealand. The work has entailed in-depth discussions with legal, financial, IT and procurement teams, contract
managers, advisors and specialists, and policy staff. The FfO team has
also worked with over 80 providers. From that work:

* 23 integrated contracts are operational and the team is
supporting the management of review meetings

* 26 integrated contracts are under development.

This means around 250 bilateral contracts have been, or are being,
pulled into 49 integrated ones.

Another 10 providers are being assessed for inclusion in the
project, and there is a waiting list. The team has also worked with
around 20 providers whose work did not lend itself to an integrated
contract, but acted to resolve contracting issues or provide other
capacity building and support. Around half of the integrated contracts
are with iwi or Maori providers.

Current work often involves facilitation of a redraft of the
results and reporting framework of existing integrated contracts. With
increased experience in this work, funders are seeing the value of
documenting in the contract the integrated service delivered by the
provider, and can also see where the part of the service they fund fits.
Review meetings also provide an opportunity for funders and providers to
collectively assess whether the service being purchased is the right
service, and to identify service gaps.

In 2007 the FfO team is focusing on providers of family violence
prevention services. It is also working with providers of youth
services, disability services, youth offending prevention, family
wellbeing/whanau ora services, early childhood services, services for
ethnic minorities, services for people recovering from substance abuse,
paroled prisoners, and so on.

As well as dealing with individuals, providers also work with
families and sometimes whole communities. The integrated contract
reporting framework is flexible enough to handle this diversity of
clients and also addresses the tension between providers' desire to
report on their whole service and each funder's requirement to know
the number of clients that received the services it funded.

The team has developed and is delivering a training programme for
participants in the integrated contract process. This aims to:

* bring everyone up to speed with changes in documentation

* ensure each government funder's contract manager understands
his or her role and responsibilities in managing the integrated
contract, and

* give participants practice in developing a results-based
contract.

IMPACT AND VALUE OF INTEGRATED CONTRACTING

The process of integrating contracts is shifting the culture of
contracting across government from micro-management to a client-focused
relational approach built on trust. The strong emphasis on collaborative
reviews of the provider's work provides a robust, risk-aware,
supportive service delivery environment. The reviews emphasise
continuous improvement through adoption of "best" practice.
Funders have a better understanding of what they are purchasing, the
cost of service delivery and gaps in service delivery become more
transparent, and the myriad tensions between providers' and
funders' agendas are explored and addressed.

The earlier difficulties encountered in developing integrated
contracts are being overcome with the development and refinement of
tools and processes. As government funders become increasingly familiar
with these processes and with the results framework introduced by Mark
Friedman (2005), the speed with which integrated contracts can be
developed is increasing.

In 2006 an evaluation was carried out on the first two years'
operation of integrated contracts. Despite the newness of the process at
that time, the evaluation found that both providers and funders
supported integrated contracting and wanted to continue with the
process. Benefits identified included:

* better service development and planning

* increased capacity and transparency in the delivery of holistic
services

* greater capacity to meet the needs of clients and focus on
achieving longer-term outcomes

* providers experiencing improved operating effectiveness

* more transparent accountability

* greater certainty of funding through longer-term contracts

* a range of transaction benefits resulting from a reduction in the
number of reports required, a reduction in the number of separate
provider-funder meetings, improved understanding of funders of the
services being funded, and the focus on results of service delivery for
clients.

The evaluation identified that results-based integrated contracts
are introducing a new contracting culture. The FfO project has acted as
an important catalyst for ongoing evolution of contracting processes
that are collaborative and outcomes focused. Under these evolving
processes funders and providers are being involved, often for the first
time, in collective contract negotiation. Providers value this changing
culture of contracting for a range of reasons.

* They feel they have a better understanding of funders'
requirements.

* Their participation is beginning to be on a more equal footing
with funders.

* Funder-provider relationships are valued.

* The nature of their services is more accurately reflected in
contracts.

* Their achievements are more identifiable in the reporting
frameworks.

Funders feel that they have a better understanding of the
operational and policy contexts in which their co-funders work and a
better idea of how to work with and support providers individually and
collectively in ways that are leading to better service delivery and
better outcomes for clients.

REFERENCES

Mark Friedman (2005) Trying Hard is Not Good Enough: How to Produce
Measurable Improvements for Customers and Communities, Trafford
Publishing, Victoria, Canada, www.resultsacountability.com.

Ministry of Social Policy (2001) Evaluation of the Lead Funder
Prototype Pilot, Ministry of Social Policy, Wellington.

New Zealand Government (2001) Statement of Government Intentions
for an Improved Community-Government Relationship, New Zealand
Government, Wellington.

State Services Commission and Ministry of Social Development (2003)
Progress Report on Integrated Service Delivery Programme, State Services
Commission and Ministry of Social Development, Wellington,
www.ssc.govt.nz/report-integratedservice-delivery.

The Treasury (2003) Guidelines for Contracting with Non-Government
Organisations for Services Sought by the Crown, The Treasury,
Wellington.

Ann Pomeroy (1)

Family and Community Services

Ministry of Social Development

(1) This paper is based on a presentation to the Social Policy,
Research and Evaluation Conference, 3-5 April 2007, Wellington, New
Zealand.

(2) A wraparound service is a range of services designed to address
the multiple needs of the client and his/her family (e.g. it may include
services to address mental health issues, substance abuse, lack of
employment, behavioural problems such as violence, and offending).

(3) These secondees have now been replaced by a dedicated team of
contract specialists based in Wellington.

(4) While this is usually a funding interest, integrated contracts
also include agencies that are interested in the results of service
delivery. These agencies may provide non-financial support. Other
agencies do not fund the service, but may provide funding to assist the
provider build capacity.

(5) This occurs particularly where the provider is delivering a
wraparound, holistic or case managed service to assist the client
(whether an individual, family or community) meet his/her or their
needs.

(6) State Services Commission, Treasury, Prime Minister and Cabinet
and also the Office of the Auditor-General.

COPYRIGHT 2007 Ministry of Social Development
No portion of this article can be reproduced without the express written permission from the copyright holder.